Structure of a Father Son deal

[Jeffrey McKee]

Looking to structure a deal between myself and my dad.  It would be a duplex investor purchase with 20% down.  10 % from me and 10 % from him.  We agreed that since I would manage everything and take 10% off the top of the monthly cashflow then split 40% for him then 60% for me.  

We are discussing having both names on the deed and loan.  How would that complicated things in the future for his estate dividing.  Would I just buy out the other percent?  I have two other brothers.

I also want to make sure the bank knows that i am not getting gifted the money and that we have a "partnership agreement".  I want to make sure i am not shooting myself in the foot when i find my own duplex, or multiplex to purchase for owner occupancy buy and hold deal.  My banker told me it shouldn't be an issues as long as i do my due diligence in gathering leases and keeping copies of checks for tenants.  

[Elizabeth Grahsl]

If you are both on the loan, your bank won't care who is putting up what percentage of the down payment or whether your dad gifts you portions of the down payment or even of the property over time.  That's between you and your CPA or estate planner (and the IRS...).  

The complicated thing is that if either of you wants to get another loan in the future, you will be considered liable for 100% of this debt.  You wont' convince the next bank that you're really only responsible for X% of the payment or loan balance.  So effectively it limits what you can borrow in future.

As far as the estate planning, you just need to nail down who owns what percentage of the asset.  If you want to treat cash flow differently that's fine, but it sounds like you're planning to own the property itself 50/50 (that's good and keeps things easy to calculate).  

Your father's portion of the property would be included in his estate like any other asset.  You would want to be prepared to buy your brothers out if he leaves all assets to the three of you equally (an independent appraisal would determine value at the time of his death).  Worst case though you'd just start paying them two thirds of the portion of cash flow that used to go to your father.  [He could lay out terms in his will to divide things up where you get the property and the brothers get other assets; the tough thing about that is projecting the value of the assets upon his death though to keep things equal.] 

Just make sure to keep clear records of who owns what via a simple contract/partnership agreement.  It shouldn't be expensive to draw up, but you will want to be able to provide solid evidence of the deal to IRS auditors, estate attorneys, siblings, or any other interested parties in the future.  Any attorney can do this for a couple hundred bucks I'd say.